The Next Big Short.

An interesting Blog Post on the parabolic rise in Silver and to some extent, in, Gold.

In 2001, the bubble in tech stocks burst. In 2008, Hedge Fund Manager bet that the sub prime market was going to crash. He was correct, big time. The bubble getting formed in Silver and Gold may qualify as a similar short. The reasons are:

1.Explosive & exponential gains (>400% gains w/Gold & >700% gains w/Silver since 2002)
2.General public participation
3.Everyone’s a winner
4.People who did not participate before – participate now (insert your personal anecdote here)
5.”This time is different” syndrome (the financial system is broken, therefore…)

This trade is no different than Paulson’s short on the housing sector – or Buffet’s short on the dollar. They did their due diligence – recognized an asset class that was so historically stretched in relation to the mean and waited for their ship to come in. It is most similar to the Paulson trade – because everyone believed that the housing market was infallible to the kind of declines Paulson recognized as inevitable.

Today, everyone believes the inverse relationship to be true. That the financial system is broken, that the Fed has lost control and that Islamic Jihadists or a Middle Eastern state(s) will bring us to our knees. While there is some truthiness in shades of that – it’s more hyperbole than reality.

It was the confluence of the Tech Bubble bursting in 2000, the events of 9/11 and a commodity sector that was overdue for outperformance – that gave birth to this bubble. As with every bubble – it starts with a legitimate thesis for outperformance – and then runs away with emotion. It is only after we reach the dizzying heights of the sun that we realize the danger we so confidently embraced.

That moment seems imminent.